21.10.21 Market Intel

The 2021 Budget – A summary of how will it affect innovation funding

According to the UK Government, innovative fast-growing firms account for less than 1% of UK companies, but such firms add £1 trillion to the UK economy and account for the majority of net employment growth and output growth- it’s pleasing to see they are a main investment focus in The Budget 2021.

Research and innovation are vital to our country’s prosperity, security and wellbeing, especially in a time when the UK economy is grappling with the impacts of Covid 19 and any challenges associated with Brexit (the UK’s departure from the EU). The Government has reiterated its desire to reach its target of 2.4% GDP investment in Research and Development (R&D) by 2027 in its efforts to make the UK the world’s most innovative economy.

Our team of non-dilutive funding experts have reviewed the details contained within the Chancellor’s 2021 budget speech and associated documentation to understand how this could impact the innovation landscape and funding options for world-leading UK companies.

Funding for Innovation- Schemes

Preventing abuse of the R&D Tax Credits Scheme

In order to prevent fraud, the government has introduced a cap on the amount of the payable R&D tax credits that a qualifying loss-making company can claim.

For accounting periods beginning on or after 1st April 2021, the amount of SME payable R&D tax credits that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability.

A great deal of genuine SME claims will be affected by the introduction of the new cap. Those that are likely to be impacted include:

  • Companies that outsource large parts of their R&D projects
  • Companies for whom a large proportion of the R&D costs arise from consumables (e.g. raw materials)

The government will also carry out a review of R&D tax reliefs, with a consultation published alongside the Budget, considering all elements of the two R&D tax relief schemes. This is to ensure the scheme continues to facilitate cutting-edge research within the UK, whilst ensuring value for money for the taxpayer.

R&D Tax Reliefs: consultation

Build Back Better: our plan for growth

This vision is set to target investment towards advancing infrastructure, skills and innovation to achieve economic recovery and growth. The Government’s objective is to create “the best ecosystem in the world for starting and growing a business.”

Included within the Build Back Better Plan is an explicit recognition that Innovate UK’s grant programmes and government initiatives will remain a key component of the support available to help the most innovative, R&D-intensive businesses to grow and scale. It also reiterates the Government’s ambition to invest £800m in the new Advanced Research and Invention Agency (ARIA).

As stated in the 2020 Spending Review, the allocation of £100 billion of capital investment aims to kickstart growth and support jobs, which suggests an increase in capital investment funding competitions for businesses.

Further details of these initiatives are anticipated over the coming months, particularly in the publication of a new Innovation Strategy, due in Summer 2021.

Build Back Better: our plan for growth

Future Fund: Breakthrough

“The government will commit £375 million to introduce Future Fund: Breakthrough”.

This new fund is a direct co-investment product to support the scale-up of the most innovative, R&D-intensive businesses. The British Business Bank will take equity in funding rounds of over £20 million led by private investors to ensure these companies can access the capital they need to grow and bring prosperity to communities across the UK.

UK Infrastructure Bank

The Budget also sets out more detail on the new UK Infrastructure Bank. Launching in Spring 2021 and headquartered in Leeds, the bank will provide financial support to private sector and local authority infrastructure projects across the UK to help meet government objectives on climate change and regional economic growth.

The Bank will:

  • deploy £12 billion of equity and debt capital and issue up to £10 billion of guarantees
  • offer a range of financing tools including debt, hybrid products, equity and guarantees to support private infrastructure projects
  • from the summer, offer loans to local authorities at a rate of gilts + 60 basis points for strategic infrastructure projects
  • establish an advisory function to help with the development and delivery of projects.

Further details can be found in the ‘UK Infrastructure Bank Policy Design’ document.

Sector Specific Funding

Energy Innovation

The government has a strong commitment to achieving Net Zero targets by 2050. One of the ways they intend to do this is by heavily investing in the research and development of clean technologies.

The investment commitment from the 2021 Budget includes:

  • the launch of a £20 million programme to support the development of floating offshore wind technology across the UK
  • the launch of a new £68 million UK-wide competition to implement several first-of-a-kind energy storage prototypes or technology demonstrators
  • a £4 million UK-wide competition for the first phase of a biomass feedstocks programme, to support the rural economy in making improvements to the production of green energy crops and forestry products


With the rollout of COVID 19 vaccinations in full swing, the government has made available more than £6 billion in total to develop and procure COVID-19 vaccines. £128 million of this funding has been dedicated to research and development (R&D) and vaccine manufacturing.

The UK Government’s support for the Health & Life Sciences sector continues to generate a steady stream of innovation funding opportunities for businesses.


The continued support for R&D nationally, rising investment as a proportion of GDP and the likelihood of new, localised capital funding streams provide a welcome endorsement for the pivotal role innovative businesses play in driving the UK’s economic growth.

Whilst increased funding is positive, it will no doubt increase competition for available funds. Granted Consultancy has a proven track record of securing funding for ambitious companies across a variety of sectors, specifically for Cleantech, Health and Life Sciences and Digital innovators looking to grow their business rapidly.

Our team knows where to find suitable funding, how to access it successfully and how to use it to best effect, giving your business a competitive advantage. Get in touch if you would like to explore innovation funding for your business.

Read more about The Budget 2021 HERE.


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